March 29 (Bloomberg) -- Slovenia’s economy will shrink more
than forecast as exports to Europe slow and credit dries up
because of a struggling bank industry, the government’s economic
institute said.

Gross domestic product will contract 1.9 percent this year
and grow 0.2 percent in 2014, the Ljubljana-based institute said
today, cutting an earlier estimate made in September for a 1.4
contraction in 2013 and 0.9 percent growth next year. The
European Commission has forecast a 2 percent decline this year,
the most in the European Union after Greece and Cyprus.

Slovenia, grappling with its second recession since 2009,
is trying to avoid becoming the next euro-region nation to ask
for a bailout as investors worry Premier Alenka Bratusek’s
government will fail to prop up banks and lose access to
financing abroad as the cost of borrowing rises. GDP contracted
3 percent in the fourth quarter.

“Along with the worsening economic situation in the
international environment, key elements for the decline will be
the state’s continued fiscal consolidation and the rebuilding of
the banking system,” Bostjan Vasle, the institute’s director,
told reporters.

Bond Yields

The yield on the dollar-denominated debt maturing in 2022
surged to a record 6.382 percent on March 27. The yield dropped
one basis point to 6.09 percent at 11:30 a.m. in Ljubljana,
according to data compiled by Bloomberg.

The Adriatic nation won’t need a bailout, central bank
Governor Marko Kranjec said in an interview with STA newswire
yesterday. He acknowledged the country is in a big financial and
economic crisis.

Vasle said the country’s jobless rate, which jumped to 13.6
percent in January, the highest since May 1999, will continue to
rise this year.

Slovenia’s fundamentals and “business model” put the
country in a stronger position than most other illiquid
peripherals, Credit Agricole Corporate & Investment Bank
economist Frederik Ducrozet said yesterday in a report. He said
there is a risk the Alpine nation could be forced into a bailout
in the coming months to secure a stable funding for bank
recapitalizations.